With this report, we introduce our quarterly EPS estimates for The Cheesecake Factory (CAKE; Neutral, $29.32) for 2021E as follows:
Q1E: $0.14, Q2E: $0.32, Q3E: $0.26, Q4E: $0.33
After today’s market close, The Cheesecake Factory (CAKE; Neutral, $26.57) reported adjusted Q2 EPS of -$0.87, better than our -$1.00 forecast and sell-side consensus (according to Consensus Metrix) of -$1.09. The diluted share count used in the calculation is about 52.8 million, quite different from our 46.4 million estimate and consensus of 46.5 million. The reason for the higher actual “Represents the impact of assuming the conversion of preferred stock into common stock (8,996,851 shares).” Excluding this effect, adjusted Q2 EPS would have been about -$1.05, according to our calculations. CAKE shares were up by about +4.9% in today’s regular trading session, and may give back a bit of that in tomorrow’s trading.
Given risks to The Cheesecake Factory’s (CAKE; Neutral, $20.57) labor costs — as little-to-no states and local municipalities appear willing to budge on planned minimum-wage hikes, despite extraordinary economic challenges facing the U.S. restaurant industry (and especially full-service restaurants) — we lower our 2020E and 2021E EPS estimates for the company by -20 cents and -35 cents, respectively, to -$1.40 and +$1.05. In our coverage list the company most likely to be affected due to the minimum-wage factor remains The Cheesecake Factory, which owns and operates all 200+ of its namesake restaurants in the U.S.